Alcoa Stock, Aluminum Prices Plunge As U.S. Softens Rusal Sanctions

Aluminum prices plunged as much as 10% early Monday on word that President Trump's administration will ease its sanctions regime and may hold Rusal harmless if Russian oligarch Oleg Deripaska divests his stake. Other metals prices and crude oil also retreated somewhat.

Prices for alumina and aluminum have surged since the U.S. enacted sanctions that Congress ordered for Russia's interference in the 2016 election. Rio Tinto (RIO) said it could no longer fulfill supply contracts for alumina sourced from joint operations with Rusal in Australia and Ireland because of the U.S. sanctions. Rio Tinto lost 1.9% Monday. BHP Billiton (BHP), another global mining giant, retreated 0.9%.

The stocks surged last week, especially Alcoa, as prices of alumina, a key ingredient in aluminum, hit a record high and aluminum prices rose to a six-year high.

Alcoa on Wednesday raised its 2018 EBITDA guidance to a range of $3.5 billion to $3.7 billion vs. the $2.6 billion-$2.8 billion range given in January, citing tariffs, sanctions and market conditions. The company forecast a supply deficit for both alumina and aluminum.

Alcoa shares surged above a buy point at 57.60 on Wednesday. The stock rose as high as 62 on Thursday, but fell to as low as 51.50 intraday Monday.

Alcoa had more to gain and lose from the Russia sanctions because it supplies alumina and bauxite, as well as finished aluminum. In the long run, that exposure to all the commodities involved in aluminum production is a positive, Deutsche Bank analyst Chris Terry said in a Monday note hiking Alcoa's price target to 70 from 60, apparently just ahead of the Rusal news.

While Rusal sanctions lit a fire under Alcoa shares, supply reforms in China look to be a long-term driver, BMO Capital analyst David Gagliano said last week while hiking his price target to 80.

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